Clarksville, TN – Two days before Christmas, the government revised its estimate of 3Q14 GDP growth sharply higher (to 5.0%, vs. +3.9% in the 2nd estimate). Most of the revision was in consumer spending (a 3.2% annual rate, vs. +2.2%), which accounts for 70% of the economy.
Moreover, the monthly figures through November suggest an even stronger pace of consumer spending growth in 4Q14 (4.0% to 4.5%). It’s not hard to do the consumer spending calculation (and the monthly figures are subject to revision), but the markets seemed not to fully reflect the improved consumer outlook.
As we begin the year, investors remain nervous about global growth and the eventual tightening of monetary policy. Many U.S. firms will feel an impact from soft global growth and a stronger dollar (weaker earnings from abroad), and we should see a significant contraction in energy exploration and production.However, lower oil prices will provide a net benefit to the economy as a whole. Consumer purchasing power is improving, which should help fuel strong spending gains in the first half of the year. The Fed’s decision to begin raising short-term interest rates will be data-dependent, but with inflation running low, officials can afford to be patient.
Next week, the focus will be on the December Employment Report. Note that seasonal adjustment can be tricky (as we normally lose a lot of jobs in construction and education) and some of December’s seasonal strength (retail, package delivery) may have been pulled forward into November.
The minutes of the December 16th-17th Open Market Committee are not expected to provide any new insight into the Fed’s timing decision, but there’s always a chance that the markets may take something out of context.
Indices
Last | Last Week | YTD return % | |
DJIA | 17823.07 | 18053.71 | 7.52% |
NASDAQ | 4736.05 | 4806.86 | 13.40% |
S&P 500 | 2058.90 | 2088.77 | 11.39% |
MSCI EAFE | 1774.89 | 1789.92 | -7.35% |
Russell 2000 | 1204.70 | 1215.21 | 3.53% |
Consumer Money Rates
Last | 1 year ago | |
Prime Rate | 3.25 | 3.25 |
Fed Funds | 0.13 | 0.10 |
30-year mortgage | 3.86 | 4.53 |
Currencies
Last | 1 year ago | |
Dollars per British Pound | 1.559 | 1.650 |
Dollars per Euro | 1.215 | 1.376 |
Japanese Yen per Dollar | 119.440 | 104.990 |
Canadian Dollars per Dollar | 1.159 | 1.065 |
Mexican Peso per Dollar | 14.710 | 13.100 |
Commodities
Last | 1 year ago | |
Crude Oil | 53.27 | 98.42 |
Gold | 1198.87 | 1202.74 |
Bond Rates
Last | 1 month ago | |
2-year treasury | 0.49 | 0.63 |
10-year treasury | 2.34 | 2.31 |
10-year municipal (TEY) | 3.24 | 3.39 |
Treasury Yield Curve – 01/02/2015
S&P Sector Performance (YTD) – 01/02/2015
Economic Calendar
January 5th | — | Motor Vehicle Sales (December) |
January 6th | — | ISM Non-Manufacturing Index (December) |
January 7th | — | ADP Payroll Estimate, FOMC Minutes (December 16th-17th) |
January 8th | — | Jobless Claims (week ending January 3rd) |
January 9th | — | Employment Report (December) |
January 14th | — | Retail Sales (December) Fed Beige Book |
January 16th | — | Consumer Price Index (December) Industrial Production (December) |
January 19th | — | MLK, Jr. Holiday (markets closed) |
January 22nd | — | ECB Policy Meeting |
January 28th | — | FOMC Policy Decision (no press conference) |
January 30th | — | Real GDP (4Q14, advance) |
February 6th | — | Employment Report (January) |
Important Disclosures
US government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. US government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the US government.
Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments.
Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
Material prepared by Raymond James for use by its financial advisors.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business December 18th, 2014.